Accumulate Tech Mahindra; target of Rs 1760: Prabhudas Lilladher

Prabhudas Lilladher recommended accumulate rating on Tech Mahindra with a target price of Rs 1760 in its research report dated January 18, 2025.

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January 20, 2025 / 12:15 IST

Accumulate

26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on Tech Mahindra

The quarterly performance exceeded our expectations on the topline with few verticals BFSI and Healthcare growing at 2.7% and 4.5% QoQ CC, above the consol level. The turnaround is progressing well on the notable wins and balancing business mix from Telecom dominated earlier. The robust deal TCV of USD745m is a combination of broad-based wins across verticals and geographies, derived through multiple channel partners, advisory and onboarding senior resources for scaling strategic accounts, translates to better win-rates. However, the nature of the deals is dominated largely on the vendor consolidation and cost-takeout side, which implies the discretionary programs are still deprioritized. The key verticals (Comm and Manufacturing) are still under stress that is evident through weak Q3 performance, but the pipeline is improving. The progress on cost rationalization was yet again remarkable with operating margins are tad below our estimates. We believe, the constructive recovery in growth and margin profile is a function of strategic initiatives laid out by the company coupled with improving economic indicators. Q4 margins would be under pressure with scheduled wage hike (impact of ~100-150bps QoQ), while the management believes to recoup the drag through FPP and automation. We are passing on Q3 topline beat, while considering the facts of Comviva seasonality and missing furlough in Q4, we are revising our topline growth to 1.6% CC YoY (1.0% earlier) in FY25E. We envisaged CC revenue growth of 5.1%/8.2% with EBIT margins of 12.1% and 14.6% for FY26E/FY27E. Despite passing on Q3 topline beat, our EPS numbers are seeing a cut of 1.0%/1.5% for FY26E/FY27E due to meaningful forex headwinds. The valuations factored in all the positives, retain “ACCUMULATE”.

Outlook

We believe the company’s laid-out strategy to drive a balanced portfolio mix with reduced dependency on communications is a positive. Although the company has made notable progress in chasing large deals and winning rates, the growth engines are yet to get fueled on the core segments. We believe all positives are factored into the CMP. The stock is currently trading at 21x FY27E, we are assigning P/E of 22x to FY27E with a target price of INR 1,760. We maintain “ACCUMULATE” rating.

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